Partner Article

SMEs must ride out pre-election jitters

With businesses facing an unprecedented level of political uncertainty in the run-up to the General Election, many firms are reducing investment activity as a result of falling order books.

However, the usual dip in pre-election sales should be no cause for concern. It is those businesses that act now to take advantage of the inevitable upturn post-election that will be rewarded in the long-term.

Unsettled by the probability of a hung parliament and the uncertainty of potential legislation changes, some firms are opting to delay investment decisions until after the election is concluded.

Businesses have two options available to combat against this period of uncertainty and a slow-down in orders; either invest, or maintain their position.

John Atkinson, head of commercial business at Hitachi Capital Invoice Finance, said:

“Most businesses have little need to exercise caution. Any legislative changes that do occur as a result of the election will not come into force until next year at the earliest, which means by investing now they can take advantage of any potential change ahead.

“After weeks of speculation surrounding the outcome of the election and numerous promises being made by each party, many firms seem to have adopted a ‘wait and see’ mentality. This suspension of financial investment is usually motivated by the fear of making important decisions. Businesses should consider using simple cash flow solutions to free up vital cash owed to them by current late or unpaid invoices.”

One industry particularly vulnerable to the implications of pre-election jitters is the recruitment sector. Often responsible for the payroll of their contingent of contract and temporary staff, many agencies may find that their clients are eager to put off hiring new staff. However, this choice can reduce revenue and put a strain on cash flow.

Reluctance to make financial commitments is likely to deplete contract opportunities and as a result, many SMEs are experiencing a slow-down in orders. In some cases, customers are delaying payments of invoices, adding pressure to the already stretched cash flow of small businesses.

John Atkinson added: “Many smaller businesses rely on invoices being paid on time to cover their operating costs. They do not have large cash reserves and therefore it is crucial for the business to fill the order pipeline. The uncertainty in the general election is causing some businesses to pay late or hold off on projects altogether until a new government has been appointed.

“Businesses affected by this uncertainty could benefit from options such as invoice finance to cover overheads and maintain the company’s financial position during the slow-down. Invoice finance is often underestimated as an option to provide a boost to cash flow – allowing businesses to turn their unpaid invoices into available cash. Firms experiencing a dip in orders should take steps to gain the necessary funding required to ride out the storm.

“A lack of investment in skills, as well as a potential fall in stock levels and failure to invest in new capital, such as machinery, vehicles and property could reduce the ability of a firm to capitalise on the inevitable increase in business activity after the election.”

Cautious investment activity could prove short-sighted and may reduce the future competitiveness of a business. In the build up to the General Election and during the period of protracted debate, which will occur in the outcome of a hung parliament, SMEs must work to protect cash flow and preserve trading activity in the face of depleted order-books.

This was posted in Bdaily's Members' News section by Hitachi Capital Invoice Finance .